Create A Payment Schedule
In my opinion, its wise to pay down your Canada Student Loan during the non-repayment period, which is the first six months after finishing up your studies. Although you wont be charged interest, it does accrue immediately after you complete your studies. This will help to reduce the interest payable on the loan. For a provincial student loan, each province and territory has its own set of rules. You can find more details on the Government of Canada website.
You can determine what the monthly payments will be using the Loan Repayment Estimator tool. By entering the total amount of your student loan debt, selecting the type of interest , along with the number of months you estimate you will need to pay off the loan, the calculator gives you the amounts for monthly payments and payable interest.
For example, say you have $25,000 in student loan debt when you graduate, your loan has a 3.2% interest rate and a 10-year repayment period. With option one, you wait to begin making payments six months after finishing school. With option two, on the other hand, if you start making your repayments immediately after you finish school.With option one, you will pay a $4,246.01 in total interest. With option two, you will pay $3,793.50, reducing the interest amount $452.51. See the chart below for a further breakdown.
For an even smarter way, you could make larger lump sum payments, and this will further reduce your principal amount and thereby shrink your total interest payments.
Student Loan Repayment Statistics
Since the start of the Covid-19 pandemic, student loan payments have been flipped on their head. Federal student loan payments have been paused nationwide since March 2020, and the majority of federal loans are currently in forbearance.
At the beginning of 2020, just 2.7 million borrowers had their federal loans in forbearance. That number had shot up to 24 million borrowers by the end of 2021. However, this reprieve is set to expire in May 2022, when federal student loan payments are expected to resume.
Here are the current repayment statuses of the federal Direct Loan program.
|$112 billion||5.1 million|
Private student loans, on the other hand, received no widespread forbearance options during the pandemic. The majority of private student debt is actively in repayment. In the third quarter of 2021, 74% of private loans were in repayment, 17.5% were deferred, 6% were in a grace period and 2.4% were in forbearance.
Check Your Credit Score
Just because youve decided refinancing makes sense for the type of student loans you have doesnt mean youll actually get the better loan terms you want. Most lenders have strict requirements for who theyll let into their club, though its easier to get approved today than it was when refinancing first came on the scene.
For starters, youll generally need a credit score between 650 to 680 but thats only to meet basic eligibility requirements. To receive the best student loan refinance rates, you should have a FICO score of about 750 or above.
To make sure youre in that ballpark, do a credit check before proceeding. And to avoid any surprises when you’re finalizing the terms of your new loan, try early on to get your FICO score, which is essentially a brand-name version of your credit score. Many lenders look at your FICO score or they set outright FICO score requirements when determining their loan rates.
If you get your credit score from a bank, credit-card provider or personal-finance app, double check to see if its your FICO score. If not, you can purchase the most accurate and up-to-date versions of your FICO score directly from FICO at myFICO.com. Alternatively, you can access a version of your FICO score for free from the credit bureau Experian.
If your score comes back lower than you anticipated, then your next step should be pulling your to find out whats affecting your score.
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Should I Refinance Or Consolidate My Loans
You should consider refinancing if your finances are stable and youre able to qualify . Refinancing is best for borrowers who are looking to lower their interest rate, restructure their debt or combine multiple loans into one. Since refinancing is typically done through a private institution, you should only refinance federal loans if you dont need federal repayment plans or programs.
If youre looking to combine several federal student loans into one loan, consider direct loan consolidation. This federal option helps you simplify repayment, and apply for a new repayment plan, but it wont result in a lower interest rate. Also check out direct loan consolidation if you want to combine your federal loans while maintaining access to federal repayment plans.
Who Has Lendkey Student Loans
LendKeys loans are designed for undergraduate and graduate students enrolled at least half-time at an eligible school. If you took out private student loans to complete a bachelors or masters degree, you may have used LendKey to find a loan.
While LendKey isnt the lender behind the loan, it is the loan servicer for all student loans issued through the platform. Even if your loan was issued by one of LendKeys partner credit unions, LendKey is still the loan servicer.
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Student Loan Refinancing Vs Student Loan Consolidation: Whats The Difference
After youve learned how to refinance student loans, you may be curious about another option: student loan consolidation. Consolidating is not the same as refinancing, and its important to know the differences between the two before choosing either option. Refinancing your loan is the act of paying off an existing loan by replacing it with a new loan through a private lender.
Student loan consolidation combines multiple federal student loans into a single federal Direct Consolidation Loan. Your interest rate will be a weighted average of all your existing federal loans, so you might not receive a lower rate. But youll only have one monthly payment, so this can make it easier to manage your student loan debt. You cant consolidate private student loans into a federal Direct Consolidation Loan.
When Should You Refinance Your Student Loans
Here are a few scenarios where refinancing your student loans could be the right move:
You can qualify for a better interest rate, which will save you money on your loan
You need a lower monthly payment that fits more comfortably in your budgetng
You have multiple student loans and want to combine them to simplify your repayment
You have private student loans, so wont lose any federal benefits by refinancing
Ultimately, youll have to decide whether refinancing your student loans is a good idea depending on your individual circumstances and financial goals.
Learn more: When to Refinance Student Loans
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Is There A Catch To Refinancing Student Loans
You still have to qualify for a loan to refinance. However, the idea is that over time your credit score has improved and you are now bringing in a steady income with the degree you got. A better credit score could mean more attractive loan terms and rates. With a steady income, you would also be viewed as a lower-risk refinancer.
You would need to carefully consider when refinancing federal student loans though because they often come with benefits, such as loan forgiveness in certain career paths. When refinancing, youd lose those student loan benefitsso decide whether or not youd use any of them before refinancing.
Sign Up For Automatic Payments
A 2016 by FINRA Investor Education Foundation found that 37% of student loan borrowers had a late payment the year before. One sure way to make payments on time is to have it done automatically.
Not only does that mean youll never forget to pay, it can also save you money. A lot of lenders offer discounts of 0.25% if you sign up for automatic withdrawals from your bank account.
If you owe $20,000 with 6% interest under the Standard Repayment Plan, that would save you $320 over 10 years.
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Should I Refinance My Student Loans
The three items to consider when deciding whether to refinance are financial history, interest rates and repayment needs.
First, identify whether you qualify. Most student refinance lenders require a minimum credit score of 650. Youll also generally need to show stable income, a low debt-to-income ratio and a history of on-time debt payments.
Eligible to refinance? Now look at your current loans interest rates. If theyre significantly higher than the rate youll likely get when you refinancewhich you can check using lenders prequalification tools on their websitesrefinancing might make sense for you.
But remember, if you refinance federal student loans, youll lose access to federal programs such as flexible forbearance, income-based repayment and Public Service Loan Forgiveness . If you rely on these programs , think twice before refinancing.
An Alternative To Expensive Student Debt
Today, a record 44.2 million Americans have student loans.1 And in 2016, total student loan debt in the United States topped $1.4 trillion, almost three times the amount outstanding just a decade ago.2 The average student loan borrower has $30,1003 in student loan debt. Graduate students borrow an average $57,0004, and students receiving professional degrees such as law or medical borrow even more. As many college graduates have realized, student loan debt can present a major obstacle to pursuing the dreams a college education promised to deliver in the first place.
There is good news. Refinancing your student loans can help. A recent study estimates as many as 8 million Americans could lower the interest rates on their student loans5. Thatâs almost one out of every five student loan borrowers!
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Is Refinancing Student Loans Worth It
Student loan refinancing can certainly help certain borrowers, but the benefits of refinancing are sometimes overstated. In fact, the Federal Trade Commission put student loan refinance companies on alert in 2018, warning them against making false or unsubstantiated claims about how much refinancing could save consumers.
So how much can you save, really? That depends on several factors: the interest rate on your existing loan, your loan amount, your debt-to-income ratio, your credit history and the length of the new loan you select.
Heres a simplified example. Say you had $50,000 worth of debt from graduate school with an interest rate of 7%, and youre currently on track to pay it off in 10 years, youll be able to save $50 monthly and more than $6,000 over the life of the loan if you can qualify for a fixed rate of 5% by refinancing into another 10-year term. If, however, you can afford to pay more each month, you may be able to qualify for a lower rate. If you paid a 4.5% rate for a 7-year term, then youd save $11,200 over the long run. You can usually shave an additional 0.25 percentage points off your given interest rate by enrolling in autopay .
Private loan borrowers are unfortunately not eligible for that relief.
Does Refinancing Hurt My Credit Score Does Shopping Around Hurt My Credit Score
Shopping around should not impact your credit score, because most lenders will provide quotes without having to pull your credit report. This is called a “soft pull.”
When you’re ready to go with a specific lender, that company will need to do a hard pull, which can result in a small decrease in your score. However, in the long run you should see an increase due to the benefits of refinancing.
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How To Refinance Student Loans In 7 Steps
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Heres how to refinance student loans, in a nutshell: Find lenders that will offer you a lower interest rate. Compare them. Apply.
If youre approved, the new lender will pay off your existing lender. Going forward, youll make monthly payments to the new lender.
Heres a deeper look at the seven steps that make up how the student loan refinancing process works.
Who You Need To Repay
You may have loans or lines of credit that you need to repay to the government and/or your financial institution.
In some provinces and territories, Canada Student Loans are issued separately by the federal and provincial or territorial governments. This means that you could have more than one loan to pay back.
Verify your contracts to determine where your debt comes from and where you need to repay it.
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Check Your Credit Report
What is your credit score? If you are not sure if you have good to excellent credit, chec your credit report. Importantly, if there are any errors, you should dispute them to make sure your credit report is accurate.
Insider Tip: You can get a free copy of your credit report from all three bureaus through AnnualCreditReport.com.
Refinancing Can Help You Pay Off Debt Sooner
Refinancing your student loan debt can also help you pay off your debt sooner, saving you a significant amount of interest.
âTermâ refers to the amount of time you have to pay off your student loan. Many federal student loans begin with 10-year terms, though they may be paid back over longer periods if they have been consolidated or if theyâre above certain amounts.
Longer term loans help reduce monthly payments by dividing the amount owed into a larger number of payments. But the longer the term, the more time interest accrues on the unpaid amount, meaning youâll typically pay more over the life of the loan.
Additionally, lenders typically charge higher interest rates for longer term loans because of the increased risk to them.
Because refinancing can lower the interest rate on your student loan debt, you may be able to afford a shorter loan term. By combining the lower rate with the shorter term, you can maximize the amount of savings youâll realize through refinancing.
Shorter terms generally result in higher monthly payments, even when the interest rate is reduced, but will result in less interest paid over the life of the loan. The savings can be significant.
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Cons Of Student Loan Refinancing
- Longer payoff periods While a new loan may lower your monthly payment, it could potentially lengthen your repayment term, which means youll pay more interest over the life of the loan. If your budget allows, you may benefit from paying a higher monthly payment over a shorter repayment period, which will help you save on interest and pay off your student loan debt faster.
- Unchanged interest rates Although you can potentially refinance your loan for a lower interest rate, the rate youre offered may not make a significant difference in the long run. For example, moving from a fixed rate of 6% to a rate of 5.5% will lower your overall payments, but not by much. In this case, refinancing your student loans might not be worth it.
- May not qualify Theres no guarantee that youll be approved for student loan refinancing, even with a cosigner. If you were relying on refinancing to free up some money in your budget, you may have to choose another financial strategy instead.
How Does Student Loan Refinancing Work
You can refinance both your federal student loans and your private student loans through a private lender, such as a bank or one of the lenders offered by LendingTree. Refinancing your loans will combine all of them into one loan with one monthly payment. Your interest rate will be based off of your credit score, so if its higher than when you first applied, you should score an incredibly low rate.
If youre planning on taking advantage of federal loan forgiveness programs, you may not want to refinance your federal loans. Refinancing your federal student loans will disqualify you from any forgiveness programs. However, if you are ineligible for loan forgiveness, a refinance is the best way to lower your payments. To help determine if refinancing is right for you use our student loan refinancing calculator below.
- If you have an unstable income and/or employment situation
- If you plan to utilize an income-driven repayment plan in the future
- If you intend to take advantage of federal loan forgiveness
- If you are nearing the end of repayment
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Our Criteria For Our Best Student Loan Refinancing Options:
- Price. Saving money is the main priority in refinancing. The lenders on this page offer extremely competitive interest rates compared with others in the market.
- Ethics. In an industry that has had its share of challenges, these lenders have outstanding ethical standards.
- Customer service. We only picked lenders that get great reviews for their customer service. Some have even won awards.
- Innovation. Many of these lenders are creating specialized products to make low interest rates available to more people.
- Perks. Yoga classes and wine-tastings. Trips to Ghana to build schools for local kids. Scholarship programs and entrepreneurial seed funding. We looked for lenders that offer something special.
What If I Cant Afford To Pay Off My Student Loans
Lets face facts: the effects of the pandemic from the past two years have made it tough for students to find employment . Some young professionals who are able to land a full-time job tend to start off with modest salaries. With the inflation rate rising to 6.8%, it can be challenging to make a decent living while paying student loans. If you need are in a situation where you need help paying off your debt, here are some ways to manage it.
You can apply for the Repayment Assistance Plan for the Canada Student Loan. Once accepted, the government will revise your payments and pay the interest for you in the meantime. For help with repaying the provincial student loan, you need to contact your student-aid office. If you have a loan or line of credit with your financial institution, you can find out your options by contacting your local branch.
Keep in mind that you will want to stay on track with your payments because this will affect your . Future lenders use this information to determine how trustworthy you are when they lend you money. If you fall behind on your loan repayments, this will negatively affect your credit score. This could impact your ability to receive a mortgage or car loan down the road.
Instead, you could look at reducing your monthly payments or extending your repayment timeline to make your payments more affordable.
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